Taxes are essential to the functioning of our society
They are needed to pay for things such as roads, schools, hospitals, police officers, firefighters, public libraries, etc. Unfortunately, they also come with some hidden costs. For example, the IRS has estimated that Americans owe $1.5 trillion in unpaid federal income taxes.
Tax preparation can be a hassle. Luckily, there are several things you can do to reduce or eliminate some of the stress associated with filing taxes.
Here are some reasons why it is important to minimize your taxes:
- Saving Money
By minimizing your taxes, you save money. Not only do you avoid paying higher amounts of taxes, but you also avoid the penalty and interest charges associated with late payment. Additionally, by saving money now, you are able to use those funds for future purchases. When you begin investing in stocks, bonds, mutual funds, real estate, etc., you will need to pay capital gains taxes (if applicable) at the end of the year. By minimizing your taxes today, you will be able to invest in the future without having to worry about paying extra taxes later.
- Time Management
Minimizing your taxes takes time. You will need to organize your finances, research potential deductions, calculate how much you owe, and file your return. If you are pressed for time, consider hiring a professional service to handle your taxes for you. Many people choose to hire professionals to prepare their taxes because they cannot afford to miss work or fail to meet deadlines. Hiring a professional ensures that your taxes are prepared correctly and filed on time.
- Avoiding Penalties
If you fail to pay your taxes on time, you run the risk of incurring penalties. Penalties vary between states and range from $25 to $500 per violation. Most states require that you pay back taxes and interest over a period of three years. Failure to comply with this requirement results in a fine of 10% of the amount owed plus interest. Additionally, failure to file returns on time can result in fines ranging from $250 to $10,000 for each month that you are delinquent.
- Preparing for Retirement
Retirement planning is important to everyone. One of the easiest ways to plan for retirement is to minimize your taxes. By doing so, you will be able create a nest egg that will provide you with financial security for your golden years.
A tax return is one of the most important documents you’ll ever file
You can deduct certain expenses from your taxable income, such as mortgage interest, state and local sales taxes, property taxes, medical insurance premiums, charitable contributions, job training programs, student loans, and even moving costs. Contact Corey Kaster from Inbundance Wealth Management to learn more according to your personal situation.
If you’re self-employed, your return may be among the biggest expenses of the year. So why shouldn’t you minimize those costs? There’s a simple reason: Money saved is money earned. By saving money, you can put more into your business or invest in additional assets that increase your earning power.